Wednesday, April 16, 2014

Mr. Kruse prepared what he certified was a USPAP-compliant
appraisal using two generally accepted valuation approaches. He valued the property as of a date less than
a year after the relevant March 1, 2010, valuation date using sales that
bracketed that date. Indeed, he
testified that his opinion would be no different if he had valued the property
as of March 1, 2010. Mr. Kruse’s
valuation opinion is therefore probative.

The Respondent attempted to impeach Mr. Kruse’s opinion by
arguing that at least two of his comparable sales were the result of
repossessions, and that several others involved homes in worse condition than,
and of inferior quality to, the subject home.

While Mr. Kruse acknowledged that some of the properties
were “REO,” presumably meaning that the sellers were financial institutions
that had acquired the properties through foreclosures, the Respondent offered
nothing to support the notion that generally accepted appraisal practices would
require Mr. Kruse to automatically exclude those sales from his analysis. Indeed, Mr. Kruse’s appraisal report
indicates that all of the properties were exposed to the market, and he made
adjustments to several of the properties based on conditions of sale, albeit
none that appear to expressly account for the fact that the seller had acquired
the property through foreclosures.

As to the second point – the purportedly inferior condition
of some of Mr. Kruse’s comparable properties – the Respondent pointed mainly to
the condition ratings reflected on the properties’ record cards, without really
explaining the basis for those ratings.
Mr. Kruse, by contrast, based his evaluation of the subject home’s
condition on his own inspection. He
reached his conclusion largely because of the home’s interior, which the Respondent’s
rating does not appear to reflect. And
Mr. Buckner’s photographs of the home at least partially corroborate Mr. Kruse’s
assessment of its condition. While Mr.
Kruse did not inspect the interiors of the comparable homes, he relied on data
of the type commonly used by his peers in the appraisal profession.

Mr. Kruse acknowledged the Respondent’s third point – that some
of the comparable homes were of inferior quality to the subject home. But he explains that it is difficult to find
comparable properties when valuing a home as old as the subject home and that
similarity in condition is the most important factor. Notably, the Respondent did not point to any properties
that Mr. Kruse should have used in the place of the ones that she argued were
of inferior quality.

The Respondent also pointed to what she considered to be
factual errors in Mr. Kruse’s appraisal.
For example, the at 508 South Calvin Street is more than 2,000 square
feet smaller than what was reflected in Mr. Kruse’s valuation opinion. As Mr. Kruse explained, he used eight
comparable sales in his analysis, which limits the influence of any single sale
on his ultimate valuation opinion. And
any increase in 508 Calvin’s adjusted sale price would not change the median,
which was what he gave the greatest weight to in reaching his opinion. Mr. Kruse also credibly explained that the
property’s MLS listing reflected the larger size and that the property might
have sold for less had the listing reflected the home’s actual size.

Mr. Kruse, however, did not address testimony that another
of his comparable sales – 112 S. Orchard Street in Kendallville – was used as
an office before the sale and that significant repairs were required to convert
it to residential use. As already
explained, Mr. Kruse used eight comparable sales in his analysis, which
lessened the sale’s impact on his ultimate valuation opinion. Nonetheless, his failure to address the
property’s pre-sale use as an office detracts at least somewhat from the
reliability of his valuation opinion.

Finally, the Respondent pointed to discrepancies between the
subject home’s listing, which says that the property has 17 rooms, an elevator
and a sauna, and Mr. Kruse’s appraisal, which describes the home as having only
nine rooms and does not mention the elevator or sauna. Those discrepancies do little to undermine
the reliability of Mr. Kruse’s valuation opinion. As he credibly explained, the more than 100
year old elevator was unusable and the sauna would have little effect on the
property’s market value. As for the
discrepancy in the number of rooms, it is unclear how many rooms the home
actually has. Indeed, the property
record card appears to identify 13 rooms, which differs from both the listing
and Mr. Kruse’s appraisal. In any case,
the number of bedrooms and baths and the home’s overall size appear to have
been far greater factors in Mr. Kruse’s analysis than was the total number of
rooms.

In sum, the Respondent impeached Mr. Kruse’s valuation
opinion to a degree, but the Board still finds it reliable and generally
persuasive as to the subject property’s market value-in-use. The Board must therefore consider whether the
Respondent offered any probative countervailing evidence of the property’s
market value-in-use.

She did not. At most,
she offered a spreadsheet containing what appears to be something approximating
her own sales-comparison analysis and pointed to the Petitioner’s advertised
asking prices. As to her spreadsheet,
the Respondent did not explain how any of the properties compared to the
subject property or how she arrived at her adjustments to the purportedly
comparable properties’ sale prices. From
what little the Board can glean, it appears that she simply made purely
cost-based adjustments for a few features listed in the Department of Local
Government Finance’s guidelines for mass-appraisal assessments. Without more, the Board will not assume that
the Respondent’s analysis complies with generally accepted appraisal
principles.

The Respondent’s reliance on the Petitioner’s asking prices
is similarly unpersuasive. Mr. Buckner
explained the discrepancy between the asking prices from the Petitioner’s
listings and the requested assessment – he and the Petitioner were not
necessarily looking to move when they listed the property but were instead
trying to recoup some of his investment.
And Mr. Buckner testified without dispute that the listings had not
generated any offers, or even any interest, over the course of more than 10
years. At most, the listings might tend
to show that the property was worth no more than $375,000. But they do not support any particular value
below that level.

Because the Board is persuaded by Mr. Kruse’s valuation
opinion, it finds that the subject property’s true tax value was $166,500. The 2010 assessment must be reduces
accordingly.

DISCLAIMER

The information contained in this blog is a compilation of public information. This blog is in no way associated with, or sponsored by, the Department of Local Government Finance, the Department of Revenue, the Indiana Board of Tax Review, the Indiana Tax Court or any other court, state agency or governmental entity.This blog is intended for informational purposes only and is not intended to provide legal advice on any matter. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship.